The Boeing Company (BA)

The Federal Aviation Administration want airlines to carry out enhanced checks of lightning-protection systems on Boeing (BA) 777 aircraft after potentially hazardous corrosion was found on seven relatively young planes.

The FAA also wants carriers to replace certain parts that attach flight-control surfaces to the tail of the jets, as moisture was leaking under the sealant used on these panels and causing the corrosion.

South Korea is reportedly close to deciding that it will purchase Lockheed Martin's (LMT) F-35 fighter jets, although the country could also order a smaller number of Boeing (BA) F-15 planes.

The government could announce its plans in November as it looks to put the necessary funding in place. Those plans could include cutting the size of the order to 40-50 planes from 60.

Last month, Seoul rejected a tender from Boeing for its F-15 Silent Eagle model due to concerns about the aircraft's technological capability, especially compared with the F-35, which was also in the running. The rejection came even though Boeing's proposal was the only one of three that came in under the government's budget of 8.3T won ($7.2B).

Korean Air has agreed to acquire $3.7B worth of aircraft from Boeing (BA) in a deal that comprises five 747-8 Intercontinentals, five 777-300ERs and one 787 Dreamliner.

Despite the latest order for the 747, the iconic jet could be on its final approach. Boeing says it remains committed to the plane, but it has cut production targets twice in six months, and will manufacture just 18 in each of the next two years. Airlines prefer newer two-engine planes that have the same range but burn less fuel.

BA CEO James McNerney on sequestration: "We do remain concerned about the impact that sequestration targets will have on our customers ... Notwithstanding these budget uncertainties, our Defense, Space & Security portfolio is optimized for the current environment with a reliable, proven, affordable systems and services that are being delivered on budget and on schedule."

McNerney on 787 reliability: "We still have some customers that ... we're worried about. We're putting people, we're putting spares, we're doing some engineering changes at the component level to increase reliability. We're addressed some software issues. Software false messaging is roughly a third of the issue here and that is frustrating for us and very frustrating for our customers."

Cowen's Cai von Rumohr: "Margin before R&D ... improved pretty nicely versus Q2. You mentioned the 787 as higher gross margins, were the gross margins on the 37 and 777 higher sequentially?" CFO Greg Smith: "Yeah, we had improvements on the 737, I’d say 777 was about flat and then a slight improvement on the 787 as I talked about and then of course the lower R&D. Those are really the big drivers, Cai." (transcript)

Defense stocks emerged from last earnings season unscathed, despite worries that sequestration would begin to erode bottom lines. When all was said and done, Boeing (BA-0.8%), Lockheed Martin (LMT-2.6%), General Dynamics (GD-0.5%), Raytheon (RTN-2.5%), and Northrop Grumman (NOC-1.4%) all beat Street expectations for Q2.

This week, the market will get a fresh look at the sector, as Q3 reports begin to roll in — LMT kicks off the action tomorrow.